EC Ltd, Kaplan Kit

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  • Avatar of acca13
    acca13
    Participant
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    EC Ltd produces and sells the following two products throughout the year in a constant mix:

    Product X Product Y
    Variable cost per $ sales $0.45 $0.6
    Fixed costs $1212,000 per period

    The management of EC Ltd has stated that total revenues will reach a maximum of $4,000,000, and is generated by the two products in the following proportions:

    Product X Product Y
    Variable cost per $ of sales 70% 30%

    Required: calculate breakeven sales revenue based on the sales mix assumed above.

    I just need to know, is my way of solving the question right?


    Avatar of acca13
    acca13
    Participant
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    Kits Solution is:

    Breakeven revenue = 1212000/ 50.5%

    Breakeven revenue = 2,400,000

    Working:

    Average contribution to sales ratio ( on a $100 total sale basis)

    X Y Total
    Sales $70 $30 $100
    Contribution $70*0.55 $30*0.4 $50.5

    Average contribution to sales ratio: $50.5/$100 = 0.505


    Avatar of acca13
    acca13
    Participant
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    My answer is:[/code]

    Product X:

    Sales: 2800000 (4000000*70%)
    VC : 1260000 (2800000*$0.45)
    = 1540000

    Product Y:

    Sales: 1200000 (4000000*30%)
    VC : 720000 (1200000*0.6)
    = 480,000

    Weighted average C/S ratio; 1540000+480000/4000000 =0.505

    Breakeven revenue = 1212000/0.505 = $2400000


    Avatar of John Moffat
    John Moffat
    Keymaster
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    Your way of doing it is fine :-)


    Avatar of acca13
    acca13
    Participant
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    Thank you so much..

    God bless.


    Avatar of John Moffat
    John Moffat
    Keymaster
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    You are welcome :-)

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